news & views on the Alberta Technology sector

Vancouver’s high-tech Makeover

When the guides of the future plan the itinerary for the walking tour dubbed “Vancouver: Tech City,” they’ll start in Railtown. After all, this is where the social media company Hootsuite emerged in 2008, amid the cheap, converted warehouses between the Downtown Eastside and the docks on Burrard Inlet. Back then, you called the neighbourhood “sketchy,” but that got you the stink eye from Bill Tam, president and CEO of the BC Technology Industry Association: “It’s edgy!”

The next stop on the tour will be Gastown, another old neighbourhood of small-footprint buildings full of walk-up offices, but one that was more gentrified in the early days—not “edgy” but “funky.” In 2015, this was the home of entrepreneurial hothouses like Launch Academy, where hopeful youngsters learned how to innovate—or how to fail quickly and start again before they dragged their friends and family members into an expensive mistake.

Following a semi-circle, the tour will run through downtown, where the high-tech industry suddenly became so dominant around 2015 that it outbid law firms and government ministries for the city’s most prestigious office space. And then it’s on to Yaletown, another converted warehouse district that, in the dawning era, bristled with clubs, cafés, spas and fitness emporiums—and high-tech offices brimming with thousands of hipster techies who could afford that kind of thing.

Then, down past the Telus World of Science, tourists on this outing will come to Mount Pleasant, where Hootsuite took over a snazzy space in a move facilitated by the always-accommodating Vancouver Economic Commission.

Finally, saving the best for last, it will be on to the SkyTrain for a quick trip to Burnaby and the 10-minute walk to The Company That Saved the World.

Every great tech scene has an origin story, complete with a ground zero, like the Palo Alto garage where Bill Hewlett and Dave Packard, late of Stanford, seeded Silicon Valley. In British Columbia, the point of genesis is in the Vancouver suburb of Richmond, in an old shed long since lost in the fog along the Fraser River delta. That’s where Professor John MacDonald and physics grad Vern Dettwiler headed on Feb. 3, 1969, after they walked out of the University of British Columbia to set up a little remote-sensing company. They thought that they had an interesting technology, and they were disappointed that the brilliant young scientists and engineers they’d seen go through UBC all seemed to be leaving town. The two men hoped they might be able to keep some of the more promising students employed. Now, 46 years later, MacDonald Dettwiler and Associates Ltd.—better known as MDA—is a communications and information company with more than 4,800 employees arrayed in plants and offices around the world, including 600 in its head office and still-leading research-and-development centre in Richmond. They build everything from black-box military communications systems to radar satellites. And in their benign shadow,

the high-technology sector in B.C. now employs 84,000 people, more than the forestry, mining and oil and gas industries combined.

According to a recent KPMG report commissioned by the BC Technology Industry Association, B.C. boasts 9,000 high-tech companies that together generate more than $15 billion in direct economic impact—that’s 7.6% of provincial GDP. That sudden growth, in a province that still can’t shake the resource-industry self-image, has produced a buzz, and the buzz has turned to giddiness with the arrival and/or expansion in Vancouver of some major international players. Microsoft and Sony Pictures Imageworks have staked out huge footprints in what is arguably the highest-profile commercial space in downtown Vancouver—the redeveloped former Eaton’s (later Sears) department store that anchors Pacific Centre at 725 Granville St. Barely a block away, Amazon is installing 1,000 high-tech employees in the Telus Garden, a new head office for a telco that is, itself, a tech giant, with 7,000 employees in Metro Vancouver, including 1,200 in the downtown core; 700 of them will work at this new location.

The attendant pressure has changed the face of commercial real estate in Vancouver’s suddenly crowded downtown. Norm Taylor of commercial real estate firm CBRE says the market is set to absorb more than two million square feet of new office space in the next two years, the largest growth spurt in Vancouver’s history. As of late February, that space was more than 60% pre-leased. And in a central business district once reserved for head offices (or what small share Vancouver has of them), high-end law and accounting firms and government, high tech—growing at twice the speed of the rest of the B.C. economy—is generating more than 40% of the demand for office space.

It’s true, of course, that B.C.’s $15 billion in tech salaries, services, sales and exports pales next to California’s $275 billion. But it’s early days. “B.C. is in that adolescent growth stage when parts of you grow faster than others. It’s an awkward passage,” says Bill Tam.

The gawky phase has demonstrated three things, each of which bodes well for the future. First, tech is all about people, and every person interviewed for this story made some reference to B.C.’s research universities as a source of both tech geniuses and bold entrepreneurs. (Full disclosure: I have written for the presidents of UBC, Simon Fraser University and the University of Victoria.)

Second, tech is sticky. Sure, it’s not physically stuck to a resource like mining or forestry. But it’s surprisingly difficult to pick up and move an established tech company—especially the creative part.

Third, tech is all about critical mass. Once you have the above-mentioned talent pool, you get networking and creative cross-pollination. And you get spinoffs minted by people with serious industry experience. While no one is bold enough to say Vancouver has reached critical mass, the success of homegrown heavyweights like Hootsuite, and the arrival or expanding presence of international anchors, indicates a sector heading toward maturity.

Actually, “sector” isn’t the right word to describe this phenomenon any more. In a time and place where a surprising number of people subscribe to both Greenpeace and Harvard Business Review, we talk about the tech “ecosystem” and its “biodiversity.” Tech is no longer as sterile as a lab. It’s a forest of interaction where little things feed big things and big things, in turn, seed new little things.

The best illustration of this is the BC Techmap, an interactive visual history compiled by PricewaterhouseCoopers over the last 18 years. The map shows thick bundles of connections emanating from the research universities. In a 2013 report on some 220 UBC spinoffs and affiliated companies, Colliers International calculated total market capitalization of $2.5 billion and total annual revenue of $400 million. SFU says that it has “spun out, mentored, incubated and assisted over 200 companies, adding more than 2,400 jobs to our economy and contributing an estimated $186 million in annual tax revenues.” That’s just direct economic activity driven from university labs—everything from biotech contenders like QLT Inc. to cleaner-energy industries like Westport Innovations. The universities, with help from institutions such as the British Columbia Institute of Technology and Emily Carr University of Art + Design, also spawn

the engineers, scientists and technicians in clean tech, the health professionals and researchers in biotech, the computer and electrical engineers in web tech, and the designers, artists and storyboard writers in gaming and computer animation. Oh yes, and the business people.

Once in the tech sector, few of those people sit still. One of the next biggest tentacle bundles on the Techmap runs from MDA to the many dozens of other companies that have benefited over the years from lessons learned at the knee of MDA’s masters. Another bundle emanates from Ballard Power Systems, the once-ballyhooed fuel-cell innovator whose biggest actual output to date may be counted in talent that it has trained and sent on to other enterprises.

Consider Mossadiq Umedaly, who was Ballard’s chief financial officer in its mid-’90s heyday when Ballard, Daimler-Benz and Ford together looked like they might seize the whole burgeoning market for no-emission vehicles (said market imploded when regulatory leader California decided that hybrids were a more practical alternative). Umedaly says that Ballard’s chairman at the time, the late Fraser Mustard, used to divide the tech world into “doers” and “thinkers,” and then, à la Rumsfeld, into “doers who think” and “thinkers who do.” Umedaly, a doer who thinks, left Ballard before its slide and, in 1999, assumed the presidency (and later the chair) of Xantrex, a power electronics company that had been working on unsexy but practical power inverters since 1983. Umedaly saw the potential to scale up the Xantrex operation, especially in an age when inverters were becoming essential to managing intermittent power from renewable sources like wind and solar. He found a first round of financing and then floated an IPO in 2004, and by the time he sold the company in two pieces to Ametek and Schneider Electric, Xantrex was “the biggest clean-tech company in B.C.,” with annual revenues of $250 million.

Schneider is huge; “it’s the French Siemens,” says Schneider’s VP operations and CFO for solar, Jill Tipping. With 150,000 employees around the world and 3,000 in Canada, the company had the capacity to relocate its 200 new Burnaby employees, specialists in solar power, pretty much anywhere—a thought that Tipping says never came up. Instead, the company’s global solar business unit is headquartered in Burnaby.

Although Xantrex had no manufacturing here, almost no sales and—given the low cost of B.C.’s hydroelectric power—no market, “this is the brain trust; it’s the gold mine. The risk of moving it and disrupting it accidentally is too high,” Tipping says. In the tech world, “you do the things that are smart to do in the places that are smart to do them,” she adds, pointing to Apple, which designs in California and manufactures in China. Tipping’s only reservation about Metro Vancouver is that question of critical mass. There is great local talent, but Schneider still has to recruit mid-career managers and senior engineers from elsewhere. So, Tipping says, Schneider is delighted to see companies like Microsoft upping their Vancouver presence. “Even if they’re not directly in our space, it still creates a cluster effect that’s good for us.”

The story is similar at the Vancouver operations of what is now SAP, the world leader in enterprise software and software-related services, with 130 offices around the world and 74,000 employees. The 1,200-person Vancouver operation began in the 1980s as a local start-up called Crystal Services. Owing to a succession of takeovers, it was later known as Seagate Software, Crystal Decisions and Business Objects before being acquired by SAP in 2008. Again, SAP has the global capacity to shift or absorb smaller operations, but in Vancouver, it chose to consolidate and expand. Kirsten Sutton, managing director for SAP Labs Canada, says this location is now the SAP Canadian Centre of Excellence for Analytics—the largest software development employer in B.C., it’s SAP’s locus for innovation in some of its most important product lines. As with Schneider and Xantrex, Sutton says, moving was never an option. “The DNA is what SAP needed,” and that DNA is peculiar to Vancouver. “It’s the culture, the work-life balance. People who work here love it here and it comes through in their work.”

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In any story of Vancouver, it is, of course, inevitable that the work-life thing would come up. The city is so often dismissed as being full of people who spend too much time hiking and skiing and standing in the path of pipelines. Sitting in the spectacular downtown wedged between False Creek and Burrard Inlet in the lee of the North Shore Mountains, it’s easy to understand how people in the rest of the country would find Vancouverites smug (even if self-deluding about whether it’s worth the cost of living). But nearly everyone interviewed for this story had recently travelled to Eastern Canada, and they all felt compelled to give a weather report. In a February phone conversation, Don Osborne, president of the MDA Information Systems Group, mentioned that he was looking out across a busy, balmy Richmond golf course—and that, in Ottawa and Montreal, which he had visited the previous week, the temperature had been minus 35. SAP’s Kirsten Sutton phoned from the airport in Toronto. Minus 25. Dennis Lopes, head of legal and corporate affairs for Microsoft Canada, called from the Vancouver airport, taking his last whiff of air redolent of early cherry blossoms. He was flying home to Microsoft’s Canadian head office, also in the Toronto area, and he was dreading the change.

Microsoft is busily recruiting for its newest international development centre in the spanking new Pacific Centre space. (It has similar centres around the world from China to Finland, but no others in Canada or the U.S.) To this end, Lopes says, “We’re recruiting from around the world and, from a candidate perspective, Vancouver is very desirable, despite the high cost of living.” He went on to deliver an analysis straight out of Richard Florida. In addition to being warm and beautiful and conducive to an outdoor lifestyle, Vancouver is richly multicultural and highly diverse, all aspects that are attractive to people from the creative sector. It’s also close to Microsoft’s international headquarters in Seattle, although what really matters, for people collaborating on projects, is that it’s in the same time zone. Asked, though, if this is a recruiting centre whose real purpose is to consolidate staff, the best of whom would then be cherry-picked to go south of the border, Lopes dismisses the suggestion out of hand. Microsoft already had a Vancouver development staff of about 300. Rather than sending those folks south, it’s more than doubling their numbers. The staff in the new 143,000-square-foot Pacific Centre office will number 700, and there is a rumour (which Lopes declined to confirm) that Microsoft has told its broker that it may hang on to 75,000 square feet in an existing office in tony Yaletown. Microsoft is digging in—and in a way that contributes to a growing Canadian myth: head office, sales and marketing types go to Toronto; techies, creative and other hipsters to the Left Coast.

Mind you, it’s not all about the mountains, the oceans and the choice of three cappuccino purveyors on every block. Randy Lake, executive vice-president and general manager of the animation and visual-effects leader Sony Pictures Imageworks, brings a hard, cold, cash-based reality back into play when he says, “I love Vancouver.” Having moved the Imageworks head office from Culver City, California, to Pacific Centre as of April 1, “I would not want to pick up and leave. But if the [tax] incentives were gone tomorrow—well, that’s my nightmare scenario.” The sweetest of those incentives, for Sony, is the DAVE—the Digital Animation or Visual Effects—tax credit, which lately means that a credit of “17.5% can be applied against any qualified B.C. labour expenditures that are incurred while performing eligible post-production activities in B.C.” Lake says this break, more than any other factor, drove the relocation from Culver City.

Still, even Lake returns to the metaphor of the high-tech ecosystem. His 750 animators and visual-effects specialists will be in the same building as Microsoft’s development staff, and they all will be mere blocks away from colleagues in Gastown and Yaletown, where Sony had maintained a smaller production studio for the last five years. Lake said the firm was originally attracted by the talent in homegrown firms like Distinctive Software (now part of Electronic Arts) and Image Engine. Here again, there is strength in numbers. The visual-effects community is highly nomadic, jumping from one film production to another and—when necessary—from one production company to another. So, again, it’s easier to recruit if prospective employees know that a subsequent shift would take them to, say, the sizable Industrial Light & Magic facility down the street and not all the way down the I5 to California.

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There are two other broad aspects to the B.C. tech story—and two other places in the ecosystem. At one extreme is the bold entrepreneurial start-up—the 5,000 one-person operations that don’t even get included in the count of 9,000 existing high-tech companies. At the other are the Hail Mary candidates, like General Fusion. This is The Company That Saved the World (or at least Would Save): a $50-million gamble to produce an energy source that founder Michel Laberge insists would render fossil fuels redundant for everyone on Earth.

Laberge personifies the surprisingly short distance between those extremes. First, he is, himself, an indirect product of MDA. Following the BC Techmap, MDA begat Creo, the laser-imaging company that was acquired by Kodak in 2005. Laberge worked at Creo for nine years after receiving a PhD in physics from UBC. At Creo, he says, he learned there was more to business than “solving a triple integral equation.” But he got bored with Creo’s lasers, took his savings and set to work, in an abandoned gas station on Bowen Island, on a simple fusion power plant.

In other words, a decade ago, he was one of those start-up companies with no employees. But, by his efforts, he generated both heat and light. In fact, he generated enough energy to convince Mike Volker, director of SFU’s Innovation Office and co-founder of the Vancouver Angel Technology Network, to raise a total of $420,000 from 60 investors. Then Laberge recruited Creo colleague Doug Richardson (“for no salary!”) as CEO, and, between them, they made enough progress to attract another $50 million in financing, including contributions from everyone from Chrysalix Global Network and the oil sands company Cenovus to Jeff Bezos. They’re now working on the components of a fusion-energy reactor that will have no long-lived radioactive waste and a nearly inexhaustible fuel supply from sources such as heavy hydrogen atoms from seawater. “We’re trying to convince ourselves that it will work,” Laberge says. “Then we will need a big pile of cash.” He thinks their design could result in a plant that costs only $200 million, compared to the nearly $20-billion (U.S.) bill for the latest experimental fusion reactor in France.

This gets to one of the last, limiting factors affecting Vancouver’s reach for tech greatness: big piles of cash. While these seem to be available in the trunk of every Silicon Valley Jaguar, everyone complains that they are in short supply north of the border.

Haig Farris, the famed West Coast angel investor who co-founded and ran Ventures West, and who helped raise the $200 million that put the Burnaby quantum computing company D-Wave on the map, sniffs at the suggestion. “I’ve been in this business since 1973 and it hasn’t changed one little bit: I go to Silicon Valley and all I hear is, ‘It’s so hard to raise money.’”

But then he acknowledges that, in some ways, things have changed. “Now physics and math are driving everything and people in the venture capital community don’t get it. Neither the media nor the investors understand. So, there’s lots of angel money. But it’s hard to get people to commit for long-term, complicated things: for artificial intelligence, learning computers and materials science.

The best deals are still the hardest to sell.”

And yet, Mossadiq Umedaly, who has also spent much of the past decade managing or facilitating tech investments, says: “For a good idea, there’s always money.”

Which bit of optimism leads to a last word from Laberge, who is Québécois, funny and self-deprecating in a completely unconvincing way, and who, if he succeeds, could generate a dividend that will make the combined job-creating tech fortunes of Jeff Bezos, Mark Zuckerberg and Elon Musk seem modest. Laberge offers both a complaint, and a solution: “It’s as hard to find the money as it is to find the fusion. I walked a lot to find the money. So, I’d say, you need a good idea and long legs.”